Fitch Rts Suffolk County, New York $94MM GOs 'AA-'; Upgr Outstanding; $35MM TANs 'F1+'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to Suffolk County, New York's approximately $94.2 million public improvement serial bonds, 2006 series B, and an 'F1+' rating to the county's approximately $35 million tax anticipation notes-2006 (series II). The bonds and notes are scheduled to price via competitive bid the week of Oct. 23. The notes mature Sept. 18, 2007, and the bonds mature serially Oct. 1, 2007-2026. Capital Market Advisors LLC is the financial advisor. Fitch upgrades the county's $735 million in outstanding general obligation (GO) bonds to 'AA-' from A+'. The Rating Outlook has been revised to Stable from Positive.

The 'AA-' rating on Suffolk County's GOs is based on its broad and diverse economic base, low debt levels with manageable capital needs, and officials' success in containing expenditure growth and accumulating reserves. The upgrade recognizes the improved fiscal performance and enhanced financial flexibility in the general and other funds in recent years, as demonstrated by the establishment and accumulation of several reserve funds. Despite the strength and diversity of the economic base, slow growth in sales tax revenues in recent years is of concern.

The 'F1+' rating on the tax anticipation notes (TANs) reflects the satisfactory coverage of TAN repayment and the sizable level of borrowable funds. The county issues TANs at this time every year to offset deficiencies in property tax collections. While the repayment structure does not require a set-aside, a separate restricted bank account has been established into which delinquent tax collections for such years will be deposited prior to the September 2007 repayment. The 2007 projections of delinquent tax receipts and accumulated balances by September across the major funds cover TAN principal a satisfactory 1.6 times (x) but coverage jumps to 4.9x when the tax stabilization reserve fund (TSFR) is included.

Encompassing the eastern two-thirds of Long Island, Suffolk County's population grew 4.5% since the 2000 census to an estimated 1.5 million in 2005. The county's economy benefits from its proximity to the New York City metropolitan area as well as its own broad employment base that includes higher education, defense, retail, and technology, with numerous corporate and regional headquarters. The county's unemployment rate of 4.1% in August 2006 was below that of the state (4.5%) and the nation (4.6%). Income levels are slightly above those of the state but considerably above the national average. The large and diverse tax base is growing, with full valuation for 2006 showing a 24% increase from 2005. Market value is a high $182,088 per capita.

Sound financial management has helped contribute to positive operations despite ongoing pressure from a high social service burden. Audited 2005 results show a $54.9 million general fund operating surplus and an unreserved balance in the combined general fund and tax TSRF of a solid 14.4% of spending. The general fund operating surplus million included $19 million from a one-time accounting treatment related to Medicaid costs, but also reflects cost control measures and conservative budgeting. Although the county is still in the process of selecting an actuary to determine its long-term liability for other post employment benefits, officials expect the 2007 audited financial statements to be compliant on schedule with Governmental Accounting Standards Board Statement 45 (GASB 45). Fitch does not consider a November 2006 ballot measure that could somewhat limit future transfers to the TSRF to be a risk, as the balance will remain at a minimum of $120 million (about 6% of 2005 general fund spending) plus a growth factor based on expenditure increases. Officials expect 2006 results to be in line with recent trends, and the proposed 2007 budget appears conservative. Sales and property tax revenues are both below budget for 2006 year-to-date, by $5.0 million and $2.4 million respectively, but below-budget expenditures should offset the small shortfall. Sales tax growth for 2007 is budgeted at 2.5%, below actual growth in recent years.

Debt ratios are low and should remain so given the county's growing tax base, manageable capital needs, and rapid principal amortization. Overall debt is $1,745 per capita and 1.0% of market value. The county's three-year capital improvement program (CIP) through 2009 totals a manageable $591 million. Although the majority of the plan will be financed with bond proceeds, debt ratios should remain low as amortization is rapid with 76.4% of debt principal retired in 10 years.

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